The dollar strengthened against most currencies, while the yen and franc acted as defensive assets. Risk aversion prevailed amid disappointing macroeconomic data out of China, political tensions in Afghanistan and the spread of the Covid Delta variant.
Chinese macro data, released on Monday, flagged a slowdown in industrial production and retail sales in July due to a new wave of containment measures imposed in several regions of the country due to the spread of Covid-19.
Boston Fed President Eric Rosengren added fuel to the fire. He said in an interview with the Wall Street Journal that the Fed could start to scale back asset purchases this fall, despite the surge in Delta cases.
Today’s macro agenda (GMT 3)
- 15:15 Canada: housing starts (July)
- 15:30 US: retail sales (July); Canada: foreign securities purchases (June)
- 16:15 US: industrial production and capacity utilization (July)
- 20:30 US: Fed Chairman Powell speech
- 22:45 US: FOMC member Kashkari speech
Current outlook
The single currency dropped to 1.1768 from which it retraced upward to 1.1791. The bulls had little incentive to push higher as the EURGBP cross showed heightened volatility on Monday. The price action stabilized at 1.1776 after the close of the European session.
On Tuesday, August 17, the key pair dropped to 1.1765 in Asian trading. The euro tracked the aussie and the kiwi lower. The AUDUSD pair plunged after the release of minutes from the RBA meeting. The minutes said that recent Delta outbreaks were interrupting the recovery of the country’s economy. The Central Bank refused to cut the scope of bond purchases.
The pullback in the NZD was triggered by downbeat Covid news. New Zealand reported its first case of COVID-19 in the community in six months after a person tested positive in its largest city of Auckland.
The New Zealand dollar fell 1% against the US dollar to 0.6943. This decline came ahead of the RBNZ’s Wednesday meeting, at which the interest rate is expected to be hiked from 0.25% to 0.50%.
The release of the Fed minutes this week will be a key event for the dollar, especially if it confirms that the central bank shows a propensity to reduce its bond purchase plan by the end of the year. US Federal Reserve Chairman Jerome Powell is scheduled to deliver a speech this evening. Investors look forward to receiving a possible update on the Fed’s taper timeline.
By the time of writing, the euro was trading at 1.1766, with support located at 1.1756. If selling picks up, the decline in the kiwi dollar will pick up momentum. If the EURGBP cross also enters a correction, the bulls will not be able to sidestep a leg down to 1.1735.